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Shopify: The Entrepreneur's Platform
Why Shopify's platform continues to thrive from a business & technical perspective.
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To begin, the title of this essay, ‘The Entrepreneur's Platform’ is a play on ‘The Everything Store: Jeff Bezos and the Age of Amazon’ by Brad Stone. Since in my research time and time again I continued to hear the statement, “if you purchased something online (not on Amazon) and had a good experience, chances are — it was a Shopify store” I decided it was important to:
Discuss Shopify’s Platform Play(s).
Differentiate Shopify from Amazon & offer insight into why there in fact is room in this town for both Shopfiy & Amazon.
Predict where Shopify will be 10 years from now.
Shopify, labeled by many in finance as one of the ‘golden’ pandemic-fueled stocks (amongst the likes of Zoom, Peloton, etc), is an eCommerce platform built to help anyone start, run, and grow their own online business. What started out as an online storefront to help sell snowboards has ballooned into a platform powering public eCommerce companies like Gymshark all the way to your cousin who drop ships t-shirts from Alibaba.
During the pandemic, Shopify’s stock has shined after starting 2020 at around $400 and peaking at nearly $1,700 in November of 2021 (representing a 425% increase in less than 2 years) but has cooled down since then. Regardless, this growth still makes Shopify one of the 5 biggest SaaS companies (by market cap) on the US stock exchange behind only Adobe, Salesforce, and Intuit. If Shopify were an eCommerce store, it would be the second largest in the US, only behind, you guessed it — Amazon.
Besides their financial success, Shopify is one of the more adored brands in and around SaaS. Both users and employees adore the brand. And I have to admit, many partners do as well.
People tend to love Shopify because:
It’s a tool that can help people who want to start a business to sell things online. Anyone can go from an idea to an entrepreneur overnight.
It’s simple to use.
Their app store enables you to add on any additional tools you might need to support your business with the click of a button.
From a partner perspective, during my time at Northpass, Shopify was one of our most beloved customers. They invited our Customer Success team to their Ottowa headquarters in 2016 and the team came back raving about how amazing this company was.
They started by talking about just how smart & innovative everyone on the Shopify team was to work with. The way they described the Shopify office would put our wildest startup land fairytales to shame.
During their office tour, they were amazed how Shopify went above & beyond for everything to foster the best possible work environment. They told stories of slides on every floor, elaborate game rooms, a daycare center for kids complete with a go-kart track, a chic library, and of course a gourmet café to put your grandma's cooking to shame (for free of course).
I know this has nothing to do with Shopify’s underlying technology, but I want to showcase how in all aspects of business, Shopify is a progressive and innovative company. (Note, Shopify is now digital by default and has since announced they will be reshaping their Ottowa HQ to be aligned closer to the modern way people have adapted to work during the Covid-19 crisis. I can’t wait to see what they come up with because it will without a doubt become the workplace people aspire to be/work in.)
They also do cool stuff like bring Magic Johnson on their kickoff calls…
And if you need any more proof on how cool they are, go back to Shopify’s 2014 version of their site (using Wayback Machine) Shopify boasts testimonials the likes of Shark Tanks own Daymond John. Seriously, the polarizing Shark Tank and FUBU founder joined the company for a brief period in 2012 as a ‘Brand Ambassador.’
If Daymond received stock as part of the deal, it was probably the best ‘deal’ he’s ever made considering the stock was priced at $17 per share at its IPO in mid-2015…
Now let’s get into how Shopify came to be.
Shopify’s Humble Beginnings
The story of Shopify’s humble beginnings goes something like… In 2004 Tobi Lutke and Scott Lake were looking for a place to sell their snowboards online and were less than pleased with his options. Not only were they less than pleased, but Tobi described the eCommerce landscape at the time as, “basically user-hostile database editors, at best.”
Tobi was looking to rediscover programming as a hobby (he also couldn’t legally work at a company because of immigration issues, but nothing in the rules prevented him from starting a company), so they decided to build a custom eCommerce software for their snowboard company.
Exited to combine the excitement of programming in the developed language Ruby on Rails and the desire to start a company, Tobi went to work clocking on average 16 hour days. And a couple of months later, they launched the snowboard store — Snowdevil (pictured below).
After launching the site, people were so impressed with Snowdevil, they started asking Tobi to build their eCommerce store for them. Speaking to the success of the launch, Tobi has said,
“After one season of selling online using our own software, it was clear that the software we were building was more valuable than our snowboard brand. Over the next year and a half I called more friends, and together we turned our modest snowboard shop into what we now call Shopify.”
At this point, Tobi & his co-founder Scott parted ways leaving Shopify without a CEO. After searching for over 2 years for one, Tobi ultimately took the reigns of the company and become CEO. It took so long because Tobi wanted to find the perfect person to run his company. But after searching far and wide, he took advice from any investor & advisor who told him, “no one will ever care about Shopify as much as you do.” This advice gave Tobi the confidence to grow into the leader of Shopify.
After that, Tobi continued to grow Shopify into a world-class platform. By the end of 2013, Shopify had over 80,000 customers and 300 employees. In 2013 the company would go on to raise an additional $100 million and eventually IPO’d in 2017.
Fast forward to today, Shopify boasts over 1,700,000 businesses in 175 countries around the world that have made over $200 billion in sales using the platform. They also employ nearly 13,000 employees globally. Not bad for a company that started out selling snowboards.
I glossed over a lot, but if you’re interested in learning more about the history of Shopify, here’s a comprehensive breakdown.
The Entrepreneur's Platform of Platforms
Shopify’s platform is built to support everyone. From your neighborhood lemonade stand looking to expand production online (seriously, listen to this hilarious story on Masters of Scale) to publicly traded companies like Allbirds.
Shopify has even recently changed the tagline on its homepage to, “The platform commerce is built on”.
This sort of message reinforces their commitment to truly being the platform for entrepreneurs. And Shopify’s support of entrepreneurs has paid off.
In fact, Shopify’s customers went on quite the run in 2021 with several of them IPOing.
Clearly, Shopify’s platform strategy is hitting a stage of exponential growth rarely seen in the world of SaaS.
Reed Hoffman said it best when talking about platforms, “What’s a recipe to achieve massive scale? Three words: Be a platform. Build a virtuous cycle where everyone wins, and you’ll emerge a winner too.”
If there's anything you take away from this essay, let it be this:
So why is Shopify considered a ‘platform’?
Now we get to the part that got me the most excited to write about Shopify which is the API-first infrastructure strategy they take to build the platform. Shopify is truly the API-first posterchild and employs a strategy that we can and should all learn from.
Here’s a visual I mocked’ up to explain Shopify’s simple, yet brilliant platform strategy.
Shopify uses its APIs in 3 distinct ways:
To build its platform.
To power its thriving app store ecosystem.
To outsource & enhance its products and features.
“Stripe does not have a customer relationship with all of the Shops on Shopify; that is exactly what Shopify is good at, so why would they? Instead, Stripe is focusing on what it is good at: providing that API layer to banks that will never have the capability to serve Shopify Shops, and exposing said layer to Shopify to incorporate into their product.
Stripe isn’t exposing banking-as-a-service to customers directly on Stripe, but rather making an API available to those customers to offer to their customers.”
In the same essay, John Collison (co-founder of Stripe) explained to Thompson, “We have a lot of conviction about this idea that the financial services that a plumber needs will be different from financial services that an e-commerce company needs will be different than financial services that a gym or a yoga studio needs, and they will be provisioned by different companies. Given that we have lots and lots of exposure to those kinds of businesses with our platform partners, this is a great way to get started with that.”
What this article is disclosing is the radical benefits both Shopify & Stripe from a partnership. Shopify can have a best-in-class payment infrastructure without dedicating any resources to the very critical feature (you can’t really have an online store if no one can pay for the merchandise). And Stripe gets a great customer/partner.
First, one of Shopify’s best strategies in its rise to fame has been becoming a platform. Bill Gates said this, and people in tech have started referring to it as the ‘Gates line’ – “You are not a platform until the people who are building on you make more money than you do.”
During his interview with Reed Hoffman, Shopify’s CEO Tobi commented on the ‘Gates line’,
“We’ve only cleared that in 2018. So it takes a long time. And it’s hard to do, because you are leaving a lot of economics that you could easily take for yourself on the table – or actually, you are investing it into your own future by giving it to other people. And that’s very hard to do for most businesses.”
The exchange that follows in the episode captures why big tech companies need to become platforms to be successful:
Reid Hoffman: Yes, no, exactly. Part of the dynamic by which I actually look at the majority of my investments – like maybe 90% plus – is do I see a route to being a platform? And do I see the team wanting to build the platform, and how to do it? And building platforms is super hard.
We talk about platforms a lot on this show. And Tobi is right to invoke Bill Gates. Bill knew early on that Microsoft would succeed by building a platform, by making operating systems that others could develop for, and any machine could run. Here’s how Bill described it to me:
Bill Gate: It was the virtuous cycle. The cheaper the PC was, the more volume there was for PCs, the more software for our platform there was, the more people would want to buy those PCs.
Reid Hoffman: So the main reason to become a platform is to kickstart that virtuous cycle Bill talks about. And a platform should be your end-point, but it shouldn’t be your only aim. Here’s Eric Schmidt, Google’s former CEO, on exactly why.
Eric Schmidt: Another failure that I’ve seen many many times at Google and elsewhere, is people decide that the platform is what they’re building, rather than a solution.
There are no cases where a platform emerged that was highly successful before it had a use case that solved a new problem that was important. But you don’t write a business proposal saying, “I want to build a platform.” You write a business proposal saying, “I want to solve the following problem in a new way, which will result in a platform.”
Reid Hoffman: To see how Tobi found that problem that needed to be solved, we need to go back in time, to when the only kind of platforms that interested Tobi were snowboards. He started his career as a programmer, but found himself miserable in his job.
Note, thank you Masters of Scale for this wonderful content and perspective on Shopify & platforms.
As I mentioned in a previous essay, Shopify offers more apps in its app store than almost any other B2B company (over 6k according to a 2021 Techcrunch article).
In the same article, they state that the average Shopify merchant leverages around 6 different applications to run their store.
For example, this is an example of all the tools a shoe company (like Allbirds in this case) to power their product page on a Shopify store:
Shopify isn’t just building a place for you to host your store online like they originally set out to do. They are building a platform to transform the way you run and scale your business.
Just like they give merchants the tools they need to focus on their business, Shopify also focuses on the core competencies of their product while leveraging other products & APIs for non-core components.
Shopify sees the SaaS landscape as their own personal app store.
So let’s get into the second part of Shopify’s strategy, which is Shopify leveraging other API-first companies to build non-core components of their product.
Here’s the way they approach product development & what products/features to build vs buying.
I have 2 first-hand examples that help to highlight Shopify’s strategy in building out their platform (I’ll be brief with these).
As I mentioned earlier, Northpass has been working with Shopify (who was one of our earliest adopters) for years. They came to us because they were looking to leverage an LMS’s API to power the backend of Shopify Academy while their award-winning design team created the front-end.
When meeting with their team, they let us know that they were prepared to outsource everything that wasn’t aligned to their mission of making commerce better for everyone:
To help explain why, they told us that developers don’t join Shopify to come work on the backend of an academy, a payment processing solution (which is why they leverage Stripe), or any other competency that a company needs to get done, but doesn’t relate to their mission. People join Shopify to develop the platform commerce is built on.
Another example (which I have to keep anonymous due to an NDA), is one about Shopify leveraging APIs to roll out an entire feature.
In this case, one of the features (listed as one of the 8 features Shopify features with its ‘Sell’ offering) is powered by a company’s API that focuses on building around that one specific problem. What this essentially means is Shopify on the backend is an eloquently orchestrated conduction of third-party API calls paired with its own proprietary API calls powering its world-class platform.
Here’s how the workflow works (in theory):
Next, let’s briefly talk about Shopify’s API that runs their platform.
“One of the successes of the Silk Road was the variety of goods that traveled it—a huge array of products were available to buyers along the road. In a similar way, every store on Shopify sells different products, with each merchant offering something unique.
When you build on Shopify, we give you the tools that make these different experiences possible. The key to this creativity are the APIs and extensions available on Shopify.
Five years ago, the API that powered Shopify products wasn’t the same as what powered the apps in our ecosystem. We had an API for Shopify, and a separate API for apps. Those days are over. Our products are now powered with the exact same GraphQL API you build your apps on. There also used to be a lag between when we’d ship features, and the APIs that powered them. Now, APIs ship with our products. In fact, the new POS is built with apps as a core feature.
At Shopify Unite, we gave an overview of all the new features in our developer platform. The takeaway is clear: we’re investing heavily in APIs so you can help make Shopify the most creative platform on which to build new commerce experiences.”
Shopify’s APIs aren’t the silk road though. They are a bullet train traveling at 1,000 MPH to deliver your API calls like an Amazon Package ordered for same-day delivery.
Speaking of Amazon…
Shopify & Amazon — Friends, Foes, or Both?
“Amazon is building an empire, and Shopify is trying to arm the rebels. So maybe some of our customers might compete with Amazon, at some point, but that would be like super cool, and we’re not there yet.”
— Tobi Lütke, Shopify Founder & CEO
In the Not Boring piece ‘The Hard Thing About Easy Things’, author Packy M breaks
“Shopify -- and Stripe, Big Commerce, Google, Facebook, FedEx, UPS, Flexport, Anvyl, Boxc, Kustomer, Returnly, Alibaba, and hundreds more ecommerce infrastructure companies -- is arming everyone. Using off-the-shelf software and services, anyone with an internet connection and a credit card can set up an online store and sell things to people.
In many ways, that’s a great thing. Particularly in a period of high unemployment, starting an ecommerce business is one potential way to keep paying the bills. Extremely low upfront costs and easy-to-use tools mean low barriers to entry.
This has major drawbacks for ecommerce companies that want to achieve scale and profitability, though:
First, low barriers to entry mean more competition, and everyone running around with arms means chaos. It means that it’s a great time to be an arms dealer, and a tough time to be a rebel.
Second, now that nearly every piece of the value chain has become modularized, the battle has concentrated in one place: marketing, via paid acquisition and brand, the only moat for the vast majority of brands.”
People think Shopify and Amazons can’t co-exist, but I don’t see it that way. They are focused on two entirely different problems.
Shopify aims to ‘arm the rebels’ for any business that wants to own their customer experience, distribution, and build their brand. Amazon simply wants to aggregate an audience looking to buy products and serve them a unified experience.
In a January 2022 Barron’s article, writer Luisa Beltran explains, “Retailers can use Shopify to connect to marketplaces like Amazon.com (AMZN), Meta Platforms ‘ (FB) Facebook and Instagram, and even TikTok, where they can sell to consumers, Robinson said. Shopify powers millions of merchants, including sustainable shoe company Allbirds (BIRD) and Staples Canada, in more than 175 countries.”
Not only do Shopify & Amazon integrate and work together to use both companies in conjunction, but Amazon actually sold their eCommerce Platform ‘Webstore’ to Shopify for a cool $1M. (Maybe Harley Finkelstein will give us the insider story someday of what ended up being one of the most influential deals in eCommerce history.)
Since then (as Trung so lovingly puts it), Shopify’s stock has gained ~100x ($138B) and Bezos is unemployed (but Amazon’s market cap is still nearly $1.5T, not too shabby.)
But back to the point, following the announcement to close (and sell) the Amazon Webstore program in 2015, Amazon officially named Shopify as their new eCommerce platform partner.
According to Shopify’s blog post (which has since been redirected to this guide), “As Amazon’s preferred migration partner, we’ve worked closely with the Webstore team to make moving to Shopify simple. In a few steps, merchants can transfer their customer and product data – with zero downtime or service interruptions – and begin taking advantage of an extended 30-day free trial.”
Since that deal in 2015, Shopify & Amazon’s public partnerships have cooled off a bit, but the point is — Amazon missed its shot to bury Shopify if it was ever going to. And while of course, Amazon could always launch another product to compete with Shopify, the long-term implications seem to be set in stone.
Amazon will remain the Walmart of the internet, and Shopify will continue to give entrepreneurs the ammo to launch and run successful businesses that they own & operate.
Harley said on The Tim Ferriss Show, that Tim gave Shopify some of the best advice as an advisor when he said,
“What you all are building is great. The problem is that most people who think about entrepreneurship immediately think it’s either:
For Shopify to be something important in the world, you’ll not only need to build great software —you also have to convince the world to try its hand at entrepreneurship.”
And Shopify has done just that and shows no signs of slowing down. They are truly the platform commerce is built on. As long as they focus on arming the entrepreneur, Amazon can’t touch Shopify.
It’s also perceived that Shopify might not build and productize the same way Amazon does (AWS for example). This couldn’t be further from the truth. Remember, Shopify was built by Tobi building a tool to support his own underlying need.
I reached out to Tobi (Shopify’s CEO) and asked him on Twitter, “@tobi, I’m working on a piece on how @Shopify is the poster-child for API-first strategy. From Stripe for payments to using an array of 3rd party APIs to build the non-core components of Shopify. Can you comment on why Shopify has such an innovative API-first strategy?”
To which he responded,” Useful to have a look at
which we released back before Shopify launched I think”
Active Merchant describes itself as an extraction from the e-commerce software solution Shopify. Shopify's requirements for a simple and unified API to access dozens of different payment gateways with very different internal APIs was the chief principle in designing the library. It has been in production use since June 2006 and is now used in most modern Ruby applications which deal with financial transactions. The continued maintenance is done by the Shopify and Spreedly teams, with much help from an ever-growing set of contributors.
Shopify’s contributions to Active Merchant, Ruby on Rails, and other open-sourced projects actually showcase a similar strategy to Amazon. While Amazon wants to build the tools they need and then sell them to the world, Shopify wants to continue to innovate technologies entrepreneurs will continually need in their underlying technologies.
The way Shopify innovates may be mostly open-sourced and lean towards a more technical audience, but these developments are going to shape eCommerce technology for years to come.
I’m going to quote Reed Hoffman one last time because what he’s said about platforms rings true (he did create & built LinkedIn, so I think he’s a pretty reliable source here):
Conventional wisdom tells you: Business is always a zero-sum game. Everyone else has to lose, in order for you to win. So grab every possible piece of your business for yourself.
Sure, a lot of iconic businesses were built that way. But there’s another model that will take you further. Find the areas of your business you can open up and let other companies build with you.
Think of the iPhone. Apple could have decided to make all the apps themselves. But they knew: The more apps there were, the more people would buy the iPhone. The more people buy the iPhone, the more companies would develop apps. It creates a virtuous cycle, where your company gains momentum from everyone’s success. This virtuous cycle also makes you more robust, more nimble in reaching new markets, and quicker to react when the market changes.
Shopify’s flywheel is very similar to Apple’s, it runs best when everyone operating through your platform is deriving value and you simply influence the platform transactions.
I strongly feel that Shopify existing and enabling entrepreneurs to start and run a business while thriving on the internet is a critical piece of technology that will enable generations of entrepreneurs. It also has a leader at the helm in Tobi who has a grand vision, strong convictions, and a track record of delivering. Not to mention, they move fast (they already have a beta program to sell NFTs on Shopify.)
In nearly every interview with Tobi that I watched or listened to (some of them going back 8 years), he constantly stated that people underestimate the market size of digital commerce. He’s been saying it for years and continues to say it to this day. I’m betting that if he’s saying it, people are still underestimating the size of the market Shopify serves and we’re going to continue seeing amazing things from them.
This piece was really fun to write, and I hope you enjoyed it. I can’t wait to explore what’s coming next with you.
Thanks for reading — until our next adventure.